Nelsen v. Nelsen

• Decision Date: 19 April 2022
• Docket Number: Docket No. 47950
• Parties: Jack S. NELSEN and Emily Nelsen, husband and wife; Matthew F. Nelsen and Janice C. Lehman, Plaintiffs Appellants, v. Jonathan F. NELSEN, Jack H. Nelsen and Joan C. Nelsen, husband and wife, Defendants/Respondents. In re: Dissolution of Nelsen Farms, LLC.
• Court: Idaho Supreme Court

508 P.3d 301

Jack S. NELSEN and Emily Nelsen, husband and wife; Matthew F. Nelsen and Janice C. Lehman, Plaintiffs Appellants,

v. Jonathan F. NELSEN, Jack H. Nelsen and Joan C. Nelsen, husband and wife, Defendants/Respondents.In re: Dissolution of Nelsen Farms, LLC.

Docket No. 47950

Supreme Court of Idaho, Boise, September 2021 Term.

Filed: April 19, 2022

Elam & Burke, P.A., Boise, and Givens Pursley, LLP, Boise, attorneys for Appellants. Alexander P. McLaughlin argued.

Parsons Behle & Latimer, Boise, attorneys for Respondents. Slade D. Sokol argued.

BEVAN, Chief Justice.

This appeal arises from a family dispute concerning ownership interests in Nelsen Farms, LLC ("LLC"). The LLC, as originally established, included equal ownership for two of the Nelsen's sons, Jack S. and Jonathan. However, in 2015, Jack H. Nelsen ("Jack H.") and Joan Nelsen ("Joan") modified their estate plan to transfer their interests in the LLC to their son, Jonathan, in their wills. In 2017, Jack H. and Joan altered their plans and decided to pass their interests in the LLC to Jonathan via an inter vivos transfer, rather than through their wills. In August 2017, members of the LLC held a special meeting, during which the transfer of Jack H. and Joan's membership interest to Jonathan was approved. The next month, Jack S. Nelsen ("Jack S."), Emily Nelsen, (Jack's wife), Matthew Nelsen, (Jack S. and Emily's son) and Janice Lehman (Jack S.’s sister) (collectively "Appellants"), filed a complaint against Jack H.,¹ Joan, and Jonathan (collectively "Respondents"), alleging Jack H. and Joan were incompetent and lacked testamentary capacity to modify their 2015 wills and to make the 2017 inter vivos conveyance. Appellants also alleged Jonathan unduly influenced Jack H. and Joan to obtain the estate modification. Appellants amended their complaint in October 2017, adding a claim for dissolution of the LLC. The district court entered several interlocutory decisions and orders during the case. Ultimately, in November 2019, the district court granted summary judgment to Respondents and dismissed all of Appellants’ claims. Appellants timely appealed.

I. FACTUAL AND PROCEDURAL BACKGROUND

Unless specified otherwise, the following facts are undisputed. On April 26, 2013, Jack S., Emily, Jonathan, Jack H., and Joan formed Nelsen Farms, LLC. The LLC's effective formation date was May 1, 2013, and at that time, under the Operating Agreement, membership percentages in the LLC were: Jack S. (30%); Emily (0%); Jonathan (30%); Jack H. (15%); Joan (25%). Under Section V, 5.1 of the Agreement, Jack S. and Jonathan were designated "Managing Members" with the "authority to operate jointly" in carrying out the day-to-day business of the LLC. Each member's percentage was based on a capital contribution of their respective partnership interest in a separate general partnership—Nelsen Dairy.

On November 26, 2013, the members amended the Agreement to create a membership interest for Jack S. and Emily's son, Matthew F. Nelsen (Matthew). Matthew's membership interest was a gift from Jack H. and Joan, which reduced their membership interests to 14.707% and 24.707%, respectively. Matthew's membership was 0.586%.

On May 5, 2015, Jack H. and Joan met with John O. Fitzgerald, an estate planning and probate attorney, to discuss modifying their estate plans and to prepare new wills. Jack H. and Joan were referred to Fitzgerald by Robert Williams, the LLC's attorney. Fitzgerald discussed with Jack H. and Joan their desires and intentions to pass their respective interests in the LLC to Jonathan, rather than to divide those interests equally between Jonathan and Jack S., as they had done in their prior wills. Fitzgerald met with Jack H. and Joan again on May 22 to review the new wills and to confirm that the new wills accurately stated their desires and intentions. During both May meetings, Fitzgerald noted Jack H. and Joan's respective legal capacity and competency and offered testimony by affidavit that "[w]ithout question, to a reasonable degree of professional certainty ... both Joan [ ] and Jack H. possessed the legal capacity and competency to make and execute the new wills on May 22, 2015." Fitzgerald testified similarly about Jack H. and Joan's respective competency to execute documents designating a conservator and guardian on June 16, 2015.

Some months later, in November 2015, Fitzgerald again met with Jack H. and Joan where they discussed and made further modifications to their wills. Fitzgerald testified that both Jack H. and Joan were competent to execute their new wills on November 3, 2015. Fitzgerald also testified that throughout the ensuing 20-month period, he had the "opportunity to evaluate [Jack H. and Joan's] legal capacity, competency and testamentary capacity on numerous occasions." Fitzgerald maintained that during these discussions both Joan and Jack H.

consistently, and without assistance, prompt or aid, identified their children, their assets and the associated history of those assets, including the history of the family's dairy and farming business and the membership interests in Nelsen Farms, LLC. Both Joan [ ] and Jack H. were, from my first meeting with them, and continued to be adamant about modifying their wills to leave their estate primarily to Jonathan to the exclusion of Jack S. Nothing in either Joan[ ]’s or Jack H's conduct or statements during our meetings indicated lack of the requisite competency or capacity to make the desired changes to their estate plans, or to make cross designations for the appointment of a conservator/guardian.

Fitzgerald further testified that Jonathan was not present during any of his 2015 meetings and discussions with Joan and Jack H. Those meetings occurred on May 20, 2015, May 22, 2015, June 16, 2015, and November 3, 2015.

In May 2017, Joan contacted Fitzgerald by telephone, expressing an interest in making an inter vivos transfer of their interest in the LLC to Jonathan, rather than passing that interest through their wills. Jack H. and Joan also apparently wanted to amend their wills again. On May 30, 2017, Jonathan drove Jack H. and Joan to Fitzgerald's office. This was allegedly the first time Jonathan was informed of his parents’ intent to change their estate plan, as Fitzgerald testified that it was during this meeting he informed Jonathan "of his parents’ intention to make inter-vivos gifts to him of their membership interests in Nelsen Farms, LLC." Joan and Jack H. executed new wills at that time that remained consistent with their 2015 wills.

Throughout June and July 2017, Fitzgerald met with Jack H. and Joan several more times. Fitzgerald also began communicating with Robert Williams. These discussions included the need to call a meeting of the LLC members to present, discuss, and take action to effectuate and confirm the inter vivos gifting of the membership interests. As a result, on July 31, 2017, Williams sent a notice and agenda for a special meeting of the LLC. On August 4, 2017, the special meeting took place at the offices of Williams, Meservy & Lothspeich. Jack H., Joan, Jonathan, Jack S., and Matthew were all in attendance, together with Fitzgerald and Williams. "Gift of the shares" was the only item on the agenda. Respondents, collectively, voted for the motion; Jack S. and Matthew abstained. The motion carried with no dissenting votes cast. On August 21, 2017, Fitzgerald met with Jack H. and Joan to execute a Memorandum of Gift of Membership Interest, which transferred much of their membership interests in the LLC to Jonathan. Following these gifts, the membership percentages in the LLC were modified as follows: Jack S. (30%); Jonathan (67.414%) Jack H. (1%); Joan (1%); Matthew (0.586%). Testifying about these transfers, Fitzgerald explained:

Each understood why they were executing the memoranda and understood the effect that the memoranda would have with respect to their family, their assets and Nelsen Farms, LLC. There was no evidence that either Jack H. or Joan [ ] lacked the capacity, testamentary or otherwise, to execute, respectively, the Memorandum of Gift of Membership Interest. My professional opinion, to a reasonable degree of professional certainty, is both Joan [ ] and Jack H. were mentally competent to execute, respectively, the Memorandum of Gift of Membership Interest ....

On September 12, 2017, Appellants filed a complaint to set aside the gifts and inter vivos transfers of Jack H. and Joan based on allegations of undue influence by Jonathan. The initial complaint asserted six causes of action: (1) undue influence, (2) accounting, (3) declaratory judgment, (4) injunctive relief, (5) constructive trust, and (6) tortious interference with expectancy of inheritance. The same day, Jack S. and Janice also filed a Petition for Appointment of Guardians and Conservators for Jack H. and Joan. In connection with that case, Jack H. and Joan underwent independent competency examinations, which concluded Jack H. had dementia and was not competent to make financial and legal decisions; Joan was deemed competent to handle her affairs. Joan was later appointed guardian for Jack H.

On October 25, 2017, Appellants filed an amended complaint and added a seventh cause of action: dissolution of the limited-liability company. Appellants also moved to compel a mental examination of Joan under I.R.C.P. 35, which the district court denied on December 12, 2018, because it lacked a showing of good cause. Later, on February 6, 2019, Appellants moved for a preliminary injunction to enjoin Jonathan from exercising sole authority over the operation of the LLC in its day-to-day affairs. They also sought to require the LLC's day-to-day management be subject to the joint authority of Jonathan and Jack S. under paragraph 5.1 of the Operating Agreement. On March 4, 2019, Respondents moved for partial summary judgment seeking to have the court dismiss the claims in the amended complaint "regarding the management,...